July 12, 2019 / 5:37 PM / a month ago

Breakingviews - Driverless Argonauts are all on valuation quests

An Argo Ai self driving prototype vehicle is seen outside a Ford and Volkswagen joint news conference in New York City, New York, U.S., July 12, 2019. REUTERS/Mike Segar

NEW YORK/LONDON (Reuters Breakingviews) - Ford Motor boss Jim Hackett says the self-driving joint venture he struck with Volkswagen’s Herbert Diess on Friday “instantaneously makes it the biggest platform” in the industry. Autonomous vehicles can potentially reduce congestion and traffic-related fatalities, improve carmaker margins and more. The trouble is that working out how to value these outfits is a quest in itself.

The worth Ford and VW have put on their now shared self-driving unit, Argo AI, is a case in point. The headline figure is more than $7 billion. That’s the enterprise value, which includes $1 billion in operational funding from VW as well as Ford’s contribution. The equity is worth around $5.5 billion, based on the values ascribed to Argo and VW’s Autonomous Intelligent Driving unit, which are to be merged.

Yet it’s hard to justify those figures – or the $19 billion or so that General Motors, Honda Motor, SoftBank and asset-manager T. Rowe Price put on GM’s Cruise division in May. That’s because no one knows when autonomous driving will take off and how much revenue it will earn. It will probably take several years for carefully circumscribed operations to get underway in more than a few cities. Broad adoption is for long in the future, according to Bryan Salesky, Argo AI’s CEO.

Finding the winning formula and locating its value is, appropriately, like the Argonauts’ roving search for the Golden Fleece. Investment bank UBS reckons some $50 billion of revenue could be up for grabs in 2030 from selling autonomous-vehicle operating systems. That’d be worth perhaps $100 billion in market value, marked at two times sales – just above suppliers Aptiv and TomTom. But that’s more than a decade away – and how much of that, if any, Argo, Cruise or any other competitor will deserve is anybody’s guess.

Moreover, as of last summer Alphabet-owned Waymo was responsible for 14% of the autonomous-driving patents filed in the United States, according to UBS – roughly twice Ford’s share. Waymo’s vehicles have completed the most test miles, Evercore ISI says, and require half as much human intervention as Cruise’s. The broker reckons Waymo’s accumulated experience may be about seven times as valuable as Cruise and Argo combined.

Much of that can change over the next decade, of course. But that leaves valuations even more all over the map.

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